BuzzFeed, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; filed November 14, 2022. BuzzFeed operates one reportable segment and earns revenue mainly from advertising, content, and commerce and other. The prior-year comparisons do not include Complex Networks, acquired in December 2021, so reported growth partly reflects the acquisition.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $103.7m | $90.1m | $302.1m | $251.8m |
| Operating loss | $(18.1)m | $(0.9)m | $(78.3)m | $(17.8)m |
| Net loss | $(27.0)m | $(3.6)m | $(95.1)m | $(15.7)m |
| Adjusted EBITDA | $(2.4)m | $6.0m | $(17.1)m | $7.3m |
- Q3 revenue rose 15% year over year. Advertising was $50.4m, essentially flat; content increased 45% to $38.4m; commerce and other increased 12% to $14.9m. Nine-month revenue rose 20%, with advertising up 11%, content up 58%, and commerce and other down 14%.
- Q3 cost of revenue increased 25% to $61.0m; as a share of revenue it rose to 59% from 54%. The resulting gross margin, calculated as revenue less cost of revenue, was approximately 41%, versus 46% a year earlier. Q3 operating margin was approximately negative 17%, versus negative 1%.
- Cash and cash equivalents were $59.1m at September 30, 2022, down from $79.7m at December 31, 2021. Current assets were $182.7m and current liabilities $110.3m.
- For the first nine months, operating cash flow was negative $7.9m, investing cash flow negative $13.8m, and financing cash flow positive $3.1m. Cash declined $20.6m over the period.
- Debt was $150.7m on the balance sheet: $33.5m drawn on the revolving facility and $150.0m principal on convertible notes, partly offset by unamortized discount and issuance costs. The facility had $1.0m of remaining borrowing capacity and $15.5m of letters of credit. The company reported compliance with its $25.0m minimum-cash covenant.
- Accumulated deficit was $417.6m. The company reported $297.7m of stockholders’ equity, including noncontrolling interests.
Material changes and management commentary
- Complex Networks contributed $6.3m of Q3 advertising revenue and $13.6m of Q3 content revenue. Excluding Complex, Q3 advertising revenue declined, including declines in both owned-and-operated and third-party-platform advertising. Management cited lower programmatic impressions and pricing pressure.
- Time Spent, the company’s defined audience-engagement measure, fell 32% in Q3 and 19% for the nine-month period, mainly due to reduced time on Facebook; the acquisition partly offset the declines. Management cautions that the measure is not comparable to similarly named measures and does not directly track revenue.
- Commerce and other revenue declined 14% over nine months, which the company attributed mainly to fewer purchases from Facebook-referred traffic and comparison with pandemic-era demand. Content growth included Complex Networks and, for the nine-month period, feature-film revenue.
- Operating costs increased, including acquisition-related compensation and amortization, public-company insurance and professional fees, and stock-based compensation. Nine-month restructuring costs were $5.3m. Stock-based compensation included an $8.2m cumulative catch-up charge after the board waived a vesting condition for certain RSUs.
- Management said cash, operating cash flows, and available facility borrowings were expected to support operations and obligations for at least 12 months from issuance of the statements. It also said additional capital may be needed if those resources are insufficient; no numerical earnings or revenue guidance is provided in the filing text.
Risks, contingencies, and unusual items
- Q3 included a $2.2m non-cash impairment charge tied to the former headquarters sublease. Separately, a June goodwill test found estimated fair value exceeded carrying value by 6%; no goodwill impairment was recorded, but management warned future impairment could result if performance or assumptions weaken.
- The $150.0m convertible notes bear 8.5% stated interest, mature in December 2026, and have an initial conversion price of $12.50 per share. The revolver matures in December 2023, carries a variable interest rate, and includes financial and operating covenants.
- Management cited inflation, higher interest rates, possible recession, foreign-exchange movements, and uncertainty in advertising and commerce demand as risks. The stronger U.S. dollar contributed to foreign-exchange losses. The company does not hedge foreign-currency exposure.
- Disclosure controls and procedures were determined not effective as of September 30, 2022. The company disclosed unremediated material weaknesses involving the financial close and segregation of duties, staffing and technical accounting expertise, and control activities including IT general controls.
- Legal matters included a putative class action alleging disclosure of HuffPost subscribers’ viewing information to Facebook under the Video Privacy Protection Act; BuzzFeed disputes the claims. A separate employee-shareholder arbitration matter was permanently enjoined by the Delaware Court of Chancery on October 28, 2022. Management did not believe pending matters would have a material adverse effect.
- The filing notes substantial potential share resale and dilution, Nasdaq listing-price risk, and concentrated voting control: the CEO and affiliates held more than 75% of voting power as of September 30, 2022.
Important facts for investors to verify
- Whether operating losses and negative Adjusted EBITDA persist, and how much reported growth is attributable to Complex Networks rather than existing operations.
- Cash burn, remaining revolver capacity, the minimum-cash covenant, and the company’s ability to meet debt and lease obligations.
- Trends in platform audience engagement, programmatic impressions, advertising pricing, and commerce revenue.
- Progress in remediating the disclosed material weaknesses and whether controls are later tested as effective.
- Potential dilution from RSUs, share resales, and conversion of the notes, alongside Nasdaq listing compliance and the effect of concentrated voting rights.
- Developments in the subscriber privacy lawsuit, the former-headquarters sublease, and goodwill impairment assumptions.